Financial planning is a proactive way to ensure that you optimize the limited monetary resources available to your business. Budgeting is a key tool in financial planning that helps you decide how to allocate each projected dollar of revenue. The financial planning process is vital to the ongoing success of a small business, which must compete with companies that have larger resource pools.

Goals and Prioritization

Financial planning is strongly tied to goal-setting. Thus, a major benefit of budgeting is that you essentially declare what you feel are the most important things for your company to invest in. If increasing market share is a primary goal, for instance, it is important to allocate adequate resources to marketing. With a clear plan and establish financial priorities, you minimize the potential for waste investments or non-productive uses of all-important dollars.

Profit Potential

Financial planning involves projecting revenue for a certain period and then allocating each dollar toward an expense, investment or savings account. If you plan accurately, you know early on whether a profit is likely for a given upcoming period. If you intend to reinvest your profit, you know ahead how to do so. If not, you can influence profit and the amount that you retain by avoiding the allocation of all dollars to expense accounts.

Systematic Collaboration

Budgeting is also a way to create a unified system of operation within a business. Companies typically share goals that each department and employee contributes to accomplishing. With budgeting, you provide the resources to each department for use in carrying out its strategic responsibilities toward enterprise-wide goals. As you go forward, you can assess the success or struggles of each department in using its funds to each departmental goals. Constant evaluation and improvement helps create the company synergy you want.

Common Barriers

One major barrier to financial planning is that it is somewhat speculative. While historical revenue and expenses provide a gauge, you rarely know for sure what to expect financial as you go forward. Getting all company leaders on board with a financial plan is challenging as well. Control and enforcement of budgets also takes times to manage. You also run the risk of alienating certain departments or employees if they feel slighted in the allocation of resources. A major barrier is simply not having enough money coming in to effectively cover expenses from ongoing business activities.